Any American who watches television is subject to a constant barrage of commercials touting a host of debt solution options, one of which is the Debt Management Plan. If you are one of the literally thousands of Americans faced with more debt than your income can handle, is this an option you should consider. Exactly what is a Debt Management Plan and what are its advantages and disadvantages?What is a Debt Management Plan?These are the basics: a Credit Counselor negotiates a deal with your unsecured creditors to allow you to pay them back over an extended period of time through smaller payments made directly to the Counselor. In most cases the deal also includes reduction in the interest rates you are currently paying. Creditors are to receive regular, but smaller, payments directly from the Counselor over time, not from you.
This plan only works if your total debt is low enough to be paid back in a 3 - 5 year time period with those single payments. The Credit Counselor you hire will assess your financial situation and come up with a total monthly payment you can afford assuming the elimination of your current payments towards unsecured debt. If your income is too low or your debt too high to enable full repayment in the time allowed, you don't qualify and must look for another solution.
Disadvantages of Debt Management Plans
You're relying on the counselor to protect you from your creditors. Although this is an advantage, it can also count as a disadvantage.
Some of the problems you might find:
Your counselor does not work as promised. He will not communicate with your creditors. Or that your counselor is not sending the required information or letters to your creditors. Or that he/she doesn’t follow up, making sure the right process is being followed. Or that your payments are not going on time.
There is no legal protection. If your counselor does not do the work properly or if you cannot make your payments on time, they can come after you in a variety of legal means to attempt to collect what they are owed.
Advantages of Debt Management Plans
However there are several distinct advantages to working with a reliable debt management company:
1) You will repay what you owe faster than if you pay it back on your own.
2) You don't have to include all your unsecured creditors as you do with all other debt management solutions, including personal bankruptcy.
3) Of all your options, Debt Management Plans have the least negative impact on your credit rating.
4) You may have more disposable income left at the end of the month since the single payment you make to the Credit Counselor is generally lower than the combined total you were paying before.
5) The Credit Counselor takes care of the negotiations and payments, meaning you don’t have to talk to your creditors any more.
If your loans are more than you can pay off, it is high time for you to approach such a company. You will still pay your outstanding debt but eliminating all late fees and unnecessary charges help reduce the amount significantly. Identifying the right company is very crucial here because many companies promise to relieve you from debts but cannot do so.
Today debt management companies are in great demand. Many people are struggling, unable to manage their debts due to unforseen circumstances. These companies prove useful to both debtors and creditors as the latter can recover the money with a restructured plan which was once impossible to collect
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